Iron ore prices in China continue to slide

Given the continuous decrease in the Chinese domestic finished steel market and also given the agreement reached on lower iron ore contract prices between the China Iron and Steel Association (CISA) and the Australian miner Fortescue Metals Group (Fortescue), China's domestic iron ore market began to see an overall slide in the various regions over the past week. Looking at the current situation, iron ore prices in China appear to be just at the start of a declining phase, with significant room available for further downward movement in the future.

The international shipping freight market fluctuated within a small range during the past week. On August 19, the Baltic Dry Index (BDI) closed at 2,614 points, up just two points compared with the level on August 13. On August 19, the average freight charge from Brazil to Beilun Port in China was $30.19/mt, down by $0.96/mt week on week. Meanwhile, the average freight rate from Western Australia to Beilun on August 19 was $12.83/mt, a rise of $0.69/mt week on week.

In the past week prices of both domestic and imported ores in China's domestic market slipped down again. At present, the price of 66 percent damp base iron ore in Tangshan, Hebei Province is down by RMB 40/mt ($6/mt) to the level of RMB 630/mt ($92/mt, tax excluded), while the market prices in the northeastern regions stand at RMB 540/mt ($86/mt, damp base/tax excluded), down RMB 50/mt ($7/mt) week on week. Meanwhile, the prices of 63.5 percent Indian fine ore are down by $5/mt to $85/mt FOB, while the CIF price (Tianjin Port) has declined by $5/mt week on week to $103/mt. Additionally, the price quotation of 63.5 percent Indian ore has slipped by RMB 50/mt ($7/mt) week on week and is now at RMB 800/mt ($117/mt) at Chinese ports, while the deal price of 62.5 percent Australian PB fines has declined RMB 20/mt ($3/mt) to RMB 770/mt ($113/mt), with the market price of 65 percent Brazilian fine ore down by RMB 60/mt ($8/mt) to RMB 800/mt ($117/mt).

Against the background of slack commercial activity for imported ore, market prices of imported ore in China continued to move down during the past week. Looking at the current situation, the slump in steel prices has been the main factor driving down iron ore prices in China in recent days. With no signs of recovery observed in the domestic steel market, finished steel prices have been declining steadily. As a result of the high levels of crude steel production, market inventory levels have continued to climb, with downstream buyers consistently standing aside from market trading, thus pushing the steel market down further. Although some players believe that this latest downward movement is just a normal market correction following the strong price increases registered previously, most players seem pessimistic and cautious as regards the current market situation. At present, the prospects for the local iron ore market appear quite gloomy. If construction steel prices fall to the level of RMB 3,500/mt or even lower, then there will be plenty of room available for further downward movement of iron ore prices in the future. Although hardly any quotations have been announced lately by Indian suppliers, some Chinese players hold the view that the export price of Indian ore will drop to $90/mt CFR or so in the short term. Generally speaking, most mills and traders have adopted a wait-and-see stance because they are unwilling to buy when prices are on the way down.

On August 17, the China Iron and Steel Association announced a deal on iron ore import prices with Australia's third largest miner Fortescue. Accordingly, the agreed price of fine ores is US cents 94 per dry metric ton unit, a 35.02 percent drop compared to last year, which is around two percent under the price agreed by other Australian producers with non-Chinese steel mills. The new price is about RMB 100/mt ($15/mt) lower than the current spot price of Australian ore in China, thereby contributing to the decline of iron ore prices.